Why is 1 player spawning as expected and the other spawning in the sky?

You need to have a player spawner that’s available for Team 2. From what I can see in this photo, the two light blue spawners are Team 1 spawners only. The second player is on a different team which is causing the second player to spawn in the air. Also, when you create a new island in UEFN, there may already be a spawn pad on the island. I would recommend checking the outliner for any extra spawn pads.